BILL ANALYSIS Ó
SB 1142
Page 1
Date of Hearing: June 25, 2014
ASSEMBLY COMMITTEE ON INSURANCE
Henry T. Perea, Chair
SB 1142 (Monning) - As Amended: June 19, 2014
SENATE VOTE : 36-0
SUBJECT : Health insurance fraud: fees
SUMMARY : Provides that certain per-policy fees assessed to
fight insurance fraud attach to the specified policies
regardless of the situs of the master policy or contract.
Specifically, this bill :
1)Specifies that the existing $0.20 per-policy fee collected to
fight insurance fraud applies to each person in this state who
is covered by a policy, regardless of whether the policy is
issued to a group master policyholder located outside the
state.
2)Provides that the fee is applicable regardless of whether the
person covered by the policy is issued an individual
certificate.
3)Clarifies that this fee is applicable to blanket insurance.
4)Specifies that the Insurance Commissioner (IC) may only do one
data call per year seeking information from insurers needed to
calculate the assessment, provided that inquiring or
clarifying requests from the IC does not violate the
"once-a-year" rule.
5)Authorizes an insurer to rely upon data concerning the number
of covered people provided by the group or blanket
policyholder.
EXISTING LAW :
1)Provides for the regulation of disability insurers, which includes
health insurance, disability income insurance, and "blanket"
insurance, by the IC.
2)Requires a disability insurer or other entity liable for any loss
due to insurance fraud doing business in California to pay an
SB 1142
Page 2
annual fee that does not exceed $0.20 per year for each insured
under an individual or group policy "it issues in this state" in
order to fund increased investigation and prosecution of
fraudulent disability insurance claims.
3)Provides that after incidental expenses, 30 percent of the funds
received shall be distributed to the Fraud Division of the
Department of Insurance (DOI) for enhanced investigative efforts,
and 70 percent shall be distributed to local district attorneys
for investigation and prosecution of disability insurance fraud
cases.
4)Defines blanket insurance as a form of insurance that provides
coverage for specified circumstances or events, with the people
covered defined by class defined in a policy issued to a master
policyholder, rather than by naming individual covered people, and
for which a certificate of coverage may or may not be provided to
eligible persons.
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Purpose of the bill . According to proponents, the bill is
intended to clarify the application and scope of the
disability insurance fraud assessment that funds the
investigation and prosecution of disability insurance fraud by
the DOI and local district attorneys. The bill ensures that
there are adequate resources to investigate and prosecute
disability insurance fraud.
2)Background . The disability insurance fraud assessment was
enacted in 1991 to fund investigation and prosecution of
activities related to health insurance and other disability
claims fraud. The assessment was set at $0.10 per covered
individual, and the funds were divided equally between the DOI
and local district attorneys.
The assessment was increased by AB 2138 (Ch. 444, Statutes of
2012) from $.10 to $.20 per covered individual, and the
percentage of the funds granted to district attorneys was
increased from 50% to 70%. The IC apportions funding to
district attorneys based on criteria, including a high
probability of successful prosecutions. In Fiscal Year
2011-12, five counties received a total of $1,712,000 in
funding through the Disability and Healthcare Insurance Fraud
SB 1142
Page 3
Grant Program. The district attorneys reported 124
investigations, 48 arrests, and 43 convictions. Chargeable
fraud amounted to $210,691,543 with $2,456,180 restitution
ordered by the courts.
As a result of the fee increase enacted in 2012, local district
attorney funding increased to $6,671,000 for Fiscal Year
2013-14. Ten counties received awards this cycle, including
Orange County which received $2.02 million, Los Angeles County
which received $1.07 million, and San Diego County which
received $875,000.
3)Blanket insurance and other group policies . Many policies
that cover Californians are not issued in California. The
most common examples involve multi-state employers who
purchase health insurance on behalf of employees, but the
California employees are covered by the policy issued to the
employer's home office in another state. Similarly, blanket
insurance policies are purchased by companies or organizations
designed to cover events in multiple states, and Californians
are intended to be covered by the policy issued in another
state.
4)Situs of the contract . Historically, insurance was regulated
based on where a contract was issued. As a result, consumer
protection laws designed to benefit Californians did not
necessarily protect California residents if the policy that
covered them was issued out of state - the law of that other
state controlled. Asserting the right to protect its own
residents, California, and many other states, began to expand
on traditional insurance jurisdiction, and applied its laws in
favor of its residents regardless of the situs of the
contract. It is now well-accepted that this is a legitimate,
and fairly standard, exercise of a state's police powers.
DOI has long assumed that all of these covered Californians
would be part of the formula that was used to calculate the
amount of the fraud assessment. It is not entirely clear
whether there was 100% compliance with this assumption, but
after the assessment was doubled from $0.10 to $0.20 two years
ago, at least a number of insurers balked at counting the
Californians covered by group policies issued out of state.
DOI asserts that the bill "clarifies" existing law - to match
its assumption and apparently its regulations. Others would
view the bill as a change in the law. Regardless of the
SB 1142
Page 4
technical drafting of existing law, it appears clear that all
Californians covered by disability policies were intended to
be included in the assessment formula. At a minimum,
therefore, the bill can be characterized as clarifying the
intent of existing law.
5)Recent amendments . The bill was recently amended to satisfy
concerns expressed by disability insurers with respect to how
individuals covered by out of state contracts are to be
counted. The amendments also satisfy concerns about the scope
of data calls that can be made by the IC in support of
collecting this anti-fraud assessment.
6)Law enforcement support . A number of District Attorneys have
expressed support for the bill. They argue that
disability/health insurance fraud remains a serious problem,
that the recently enhanced funding is valuable and effective
in fighting this fraud, and that continued and stable funding
levels are crucial to this mission.
REGISTERED SUPPORT / OPPOSITION :
Support
California Department of Insurance (sponsor)
California District Attorneys Association
Alameda County District Attorney
San Diego County District Attorney
Santa Clara County District Attorney
NCFIA Anti-Fraud Alliance
Opposition
None received
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086